The Putin-Erdogan Talks – Analysis

By Chris Devonshire-Ellis

There has been intensive interest in the Western media concerning the discussions held in Sochi between Presidents Putin and Erdogan, especially as concerns the Black Sea grain deal. However, a great deal more was also on the table, including the development of a Turkish-EU gas supply hub project and bilateral trade. We provide a breakdown and analysis of all the issues talked about.

PE refers to comments made by Presidents Putin and Erdogan, CDE refers to my comments.

Russia-Turkiye Bilateral Trade

PE: Putin acknowledged that bilateral trade had increased by 86% in 2022 and that this positive trend has spilled over into the first half of 2023. He stated “Our relations are becoming increasingly diverse and not only within the sectors where we have been working together for quite a while, such as agriculture and energy, but also in other areas. We have expanded opportunities for delivering agricultural produce from Turkiye’s farmers to the Russian market. This volume is very impressive and continues to grow. We continue to expand our relations in the iron and steel industry, and these relations have very good prospects all the same. As I have said, we are moving very confidently in the sphere of energy. The main suppliers and consumers on both sides have reached agreements, and I hope that this trend will continue, and that we will witness this in the near future.“

Erdogan said that “Our relations between Turkiye and Russia, especially in terms of foreign trade turnover are making good headway, it has reached US$62 billion. We have set the task of bringing foreign trade turnover to US$100 billion by 2030. Today, the heads of the central banks of Turkiye and Russia are present here and they will hold a separate meeting. This will be an important step forward in trade relations between our countries, a step towards trade in national currencies.”

CDE: The Ukraine conflict has certainly improved Russia-Turkish bilateral trade and development, with the most recent trends outlined by us in this article here.

Of note was the meeting of the two Central Bank heads, they will have discussed increasing the use of the Ruble and Turkish Lira in bilateral trade, and the mechanisms of doing so. They will also have discussed the respective digitisation of these currencies in addition to the connecting their respective money transfer systems to avoid SWIFT. The United States has threatened to sanction Turkish banks that connect with Russia’s MIR payment system. However, as Erdogan also stated during the meeting, “Russians outnumber all other guests coming to our country as tourists.” With numbers reaching about 2.6 million in the first 6 months of this year. They are also bringing in significant financial capital into the construction and property sectors. Improving access for Russians in Turkiye to access their own money will have been a high item on the banking agenda.

Nuclear Energy

PE:  Putin said “We continue to build the Akkuyu Nuclear Power Plant. Today, Turkiye has become a member of the international club of nuclear states, following the delivery of the first batch of Russian nuclear fuel to Akkuyu. We will launch the first power unit next year, assuming all goes according to plan. There are some interesting options for continuing our cooperation here. Today, a very large team of skilled specialists (nearly 25,000 people) continues to work at the NPP.”

Erdogan responded by saying: “Concerning the Akkuyu NPP, the developments there are positive. The work is still in progress. As you said, the project employs a workforce of nearly 25,000. The developments regarding the first power unit are very good, as we said before. As for a nuclear power plant in the city of Sinop, I think we will take another step in this direction and build a new plant in that city”

CDE: Russia is often thought of purely as a hydrocarbon energy play, however it is a significant nuclear energy play as well and is exporting its technology on a global basis. It is also building nuclear power plants in Brazil as is looking at opportunities in the Middle East as well as Africa. Nuclear is part of the move to ‘green’ energy and Russia is a leader in this field.

A Turkiye Gas Supply Hub For Europe

PE: Putin stated about this that “I hope that we will complete our talks on establishing a gas hub in Turkiye in the near future, so as to make the energy situation in the region more stable and well-balanced. I believe that this will prove beneficial” with Erdogan replying “Creating a gas hub in the Thrace region will make our relations even richer in content.”

CDE: Turkiye wishes to develop itself as a gas hub for Europe given the current demise of Russian gas supplies to the EU. In doing so, it wishes to combine gas purchases from the region – including the Middle East, Azerbaijan and its own gas fields, mix these with Russian gas and resell it as a local product. This sleight of hand enables European politicians to deny that they are purchasing energy directly from Russia while alleviating their chronic gas shortages as a result of sanctioning the direct imports of Russian gas – although it is prudent to note that the EU actually increased its purchases of Russian LNG by 40% since the Ukraine conflict began. For quite obvious reasons, the development of this by all interested parties, including Brussels, is fairly low-key.

The Black Sea Grain Deal

This has been extensively covered in Western media with opinions varying from stating that Putin is making demands on Europe, see here,  here, and here, while other opinions state a possible return by Russia to the deal would be beneficial. See here,  here, and here. It is obvious that the issue – which is essentially about getting the Ukrainian grain harvest to global markets, has become intensely politicized. Putin’s beef with the EU over the issue is that he says that the EU is taking the bulk of the grain for itself and not distributing, as agreed, to poorer nations. He also wants Russian grain (and fertilizers, required for 2024 harvest) to be exported using the same routes, but requires Russia’s Agriculture bank to be released from a SWIFT ban to do so. The EU has refused, with recent mediation suggestions also made by António Guterres, the Secretary-General of the United Nations. This is what Putin and Erdogan had to say on the matter:

PE: Erdogan stated that “I want to note that the most important step… We can say that the world’s attention is on the grain deal. The world public wants to know what will come out of it and what the result will be. I think and I believe that after our contacts and during our news conference we will send the necessary message to the world, especially to the least developed African countries. A step in this direction will be of much importance.”

Erdoğan also said that Turkiye had been working alongside the UN on ways to revive the accord. “I hope the new work of the UN will yield results. I believe we will reach a solution that will meet expectations soon. All parties are aware of Russia’s expectations for the resumption of the initiative. We have expressed these demands and we continue to do so,” the Turkish leader added. He also called on Ukraine to “soften its approach” if the grain deal was to be saved.

Putin has said that the West needs to meet its commitments to the agreement in order for Russia to rejoin it.

CDE: Consequently, there is some status quo between Russia and the EU, which will not want to be seen to be bending to Moscow’s will. However, Putin has made some compromises, not generally reported in the West. These are that Russia will send 1 million tonnes of its own grain to less developed African countries via a deal with Turkey and Qatar. The intent is for Turkiye to mill this grain in their flour factories and send it as flour to poor African countries.

Russia has also stated it is just weeks away from supplying free grain to six African countries, in a deal agreed at the Russia-Africa Summit earlier this year in St. Petersburg. It should be noted that the EU has not agreed to send supplies to Africa and instead continues to stockpile Ukrainian grain.

Regional Security

Turkiye and Russia have some conflicting regional issues as concerns Syria and Libya.

PE: Putin said “We have a lot to discuss in the context of maintaining regional security. Of course, we will not overlook issues linked with the Ukraine crisis. Of course, you and I have accomplished a lot for the situation in Syria. I know that Turkiye perceives this as a highly sensitive issue; you and I are in the know about the complexities. To my mind, we should formalise the most important achievements within the framework of the Astana format, and the platform itself, too.”

Aid

PE: Putin said that “I want to say that after the terrible earthquake that hit Turkiye, we were among the first to lend a hand to the Turkish people and help ordinary people and the earthquake victims.”

Erdogan stated that “We are very grateful. I also want to note the following: the summer season and forest fires. Russia sent two aircraft to fight wildfires. They did help us a lot. But could we please increase the number of aircraft by another two, because the danger is still there, and the fires pose a great threat? These aircraft are very useful in the context of our efforts to extinguish fires.”

Looking Ahead

PE: Erdogan stated “I suggest that we work in the following way. First, we will give the floor to the co-chairs of the Intergovernmental Commission, who will provide a general overview of what is going on in our relations, primarily in trade and the economy, and will ask our foreign ministers to enact our suggestions”

Comment

Contrary to some Western media opinion, Putin has not turned down any Black Sea grain deal, he actually stated that Russia’s returning to it requires the EU to abide by its own side of the agreement. Erdogan stated that he was ‘optimistic’ this would happen, suggesting that discussions on resolving the issue will continue, probably with the participation of the United Nations Secretary-General. He might need to persuade Brussels (and Ukraine) to loosen their positions as regards Russia. In which case, in the event of prevarication, the EU will be seen as culpable in problems with global food security.

Elsewhere, the two countries appear fixed on an increasing trade development path, with options being worked out concerning mitigating Turkiye against the risk of third party sanctions. It also has the Turkstream pipeline to use as a bargaining chip – if the EU wants to obtain supplies from the ‘Turkish gas hub’ it will also need to be rather more flexible with Ankara.

This news will not go down well in the West, especially as Turkiye is a NATO partner. However, Erdogan’s positioning as a bridge between Russia and the European Union in particular can be seen as shrewd.

Turkish President Erdogan will soon get another chance to discuss Russian business at the upcoming G20 shortly to be held in New Delhi. The Russian Foreign Minister, Sergey Lavrov will be representing Russia, while an EU delegation will also be present. Discussions concerning the Black Sea grain agreement and matters of energy will undoubtedly continue in India.

Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. He can be contacted at asia@dezshira.com 

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